Atlas Pile Driving Co. v. DiCon Financial Co.

• Decision Date: 24 March 1988
• Docket Number: No. 3-85 CIV 1850.,3-85 CIV 1850.
• Citation: 697 F. Supp. 1058
• Parties: ATLAS PILE DRIVING CO. and Olson Concrete Company, Plaintiffs, v. DiCON FINANCIAL CO. LIMITED PARTNERSHIP, Lake Minnetonka Homes, Inc., and Richard Conry, Defendants.
• Court: U.S. District Court — District of Minnesota

697 F. Supp. 1058

ATLAS PILE DRIVING CO. and Olson Concrete Company, Plaintiffs, v. DiCON FINANCIAL CO. LIMITED PARTNERSHIP, Lake Minnetonka Homes, Inc., and Richard Conry, Defendants.

No. 3-85 CIV 1850.

United States District Court, D. Minnesota, Third Division.

March 24, 1988.

Koenig, Robin, Johnson & Wood by Peter W. Johnson, Wayzata, Minn., for plaintiffs.

Brenner, Workinger & Thompson, P.A. by Louis W. Brenner, Minneapolis, Minn., for defendants.

ORDER

ALSOP, Chief Judge.

The above-entitled matter came on for trial on November 2, 1987. Testimony was closed on November 23, 1987. The court conducted a charge conference with the parties' attorneys on November 24 and 25. Following Thanksgiving break, court was reconvened on Monday, November 30, for closing arguments. The court charged the jury the morning of December 1 and the case was submitted to the jury just prior to lunch on that same day. The jury returned with a completed verdict form the afternoon of December 1, 1987.

The jury concluded that all of the defendants were liable to each of the plaintiffs based upon defendants' violation of 18 U.S. C. § 1962(a), (c) and (d). The jury further concluded that Atlas Pile Driving Company ("Atlas") sustained damages totaling $24,935.00 and plaintiff Olson Concrete Company ("Olson") sustained damages totaling $25,522.33.

The instant case is now before the court on defendants' motion for judgment notwithstanding the verdict ("JNOV") or alternatively for new trial pursuant to Fed.R. Civ.P. 50 and 59, respectively.

I. BACKGROUND.

In order to adequately address defendants' numerous and farreaching objections to the jury verdict, opposing counsel's conduct and the court's conduct and rulings, the court feels compelled to review in some detail the evidence presented at trial.¹ In so doing, the court will view the evidence in a light most favorable to the plaintiffs and give the plaintiffs the benefit of all reasonable inferences that can be drawn from such evidence. McGee v. South Pemiscot School Dist. R-V, 712 F.2d 339, 343 (8th Cir.1983).

A logical starting point to understanding the rather complicated business transactions that gave rise to this lawsuit is the introduction of the participants. Plaintiff Atlas is a subcontractor that installs specialized foundations for residential, commercial and other structures. Plaintiff Olson is a concrete subcontractor. Defendant Richard Conry owns and controls defendant Lake Minnetonka Homes ("LMH"), a real estate development company in the business of acting as a general contractor on residential construction projects. Richard Conry also owns and controls American Engineering Services ("AES"), a carpentry subcontracting company. LMH is a general partner of defendant DiCon Financial Company Limited Partnership ("DiCon"), owning 99.9% of the company. DiCon is a lender to companies that develop real property. Curtis Anderson is an employee of AES, first as a carpenter and then during the time period relevant to this lawsuit as an on-site carpenter supervisor. In addition, Anderson owned and controlled Curtis Anderson Construction Company ("CACC") and Stroth Construction Company ("Stroth"). Each of these short-lived companies were real estate development companies in the business of acting as general contractors on residential construction projects.

In September, 1982, Anderson, on behalf of CACC, his newly formed corporation, purchased three lots from LMH which the court will collectively refer to as the Countryside lots. The homes Anderson intended to and actually did construct were upper bracket houses. The Countryside projects were the first attempt by Anderson to act as a general contractor in construction of a residential home other than his personal residence. The purchase price for the three Countryside lots was $40,000.00 per lot, or $120,000.00.

To finance the sale, Anderson obtained a loan from DiCon for $420,000.00, in return for mortgages on the properties. Apparently DiCon funded the land purchase ($120,000.00) and obtained financing from B.T. Investors for part of the cost of construction ($300,000.00). This type of construction financing was referred to as a wrap-around mortgage.

Conry testified that DiCon transferred the funds for the undeveloped lots directly to LMH. Then, according to Conry, LMH transferred these funds back to DiCon, to cover DiCon's original payment. It is unclear from the evidence whether the transfers between DiCon and LMH actually involved a transfer of monies or were merely bookkeeping entries. It is also unclear whether the LMH transfer to DiCon was in the form of a "loan" or "equity."

CACC was undercapitalized from its inception. Its own estimate of the cost to complete all of the Countryside projects was $1,060,000.00. Even taking Anderson at his word, CACC had only $40,000.00 in addition to the $300,000.00 construction loan to be used towards completion of the three Countryside homes.² Assuming Anderson had $340,000.00, he was $190,000.00 short of the typical construction loaned obtained by a residential general contractor.³ CACC had no other assets available to its creditors.

The Countryside construction as a whole began in September, 1982, and ended in August, 1983, although the three Countryside projects were started and completed on different dates. Dependable Heating was one of many subcontractors doing work on two of the three Countryside houses. Prior to doing the work, Thomas Chouinard, the president of Dependable, and one of Dependable's salesmen met with Anderson and Conry concerning bidding on the projects. The bids on the two houses were initially submitted in Richard Conry's name. At the meeting, Conry asked Chouinard to change the name on the bids to Anderson. Upon expressing concern about working with Anderson, Conry reassured Chouinard that Anderson was acting as the general contractor only because Conry was experiencing a family problem.⁴ Conry informed Chouinard that he was financing the project and not to worry about payment.

As it turned out, Dependable Heating and most of the other subcontractors who worked on the Countryside homes had reason to be concerned about payment. Anderson lured subcontractors onto the Countryside projects with assurances that their terms of payment would be met. When Anderson failed to pay the subcontractors for work performed, he would reassure them that payment would be made at rough-in or at completion. If a subcontractor was demanding payment and the subcontractor services were still needed to further completion of the houses, Anderson would pay the subcontractor just enough to keep them on the job. When their services were no longer needed, no further payments would be made.

The subcontractors began filing their mechanics liens on the Countryside projects in March, 1983, and continued to file their liens up to and sometimes after the foreclosure sales. On the three Countryside projects, 53 mechanics liens were filed. DiCon eventually foreclosed on all three homes following default on the loans by Anderson.

The first foreclosure sale occurred on February 9, 1984, with DiCon bidding the amount of its encumbrance, $161,232.00. The second foreclosure sale occurred on April 5, 1984, with DiCon again bidding the amount of the encumbrance, $166,480.00. The final foreclosure sale occurred on January 8, 1985, with DiCon bidding the amount of its encumbrance, $199,836.00. Some of the subcontractors joined together to redeem the properties foreclosed in the second and third sales, although the redemption merely allowed them to recover a fraction of their losses. As a result of the redemptions, DiCon received the full amount of its original loan plus a rather substantial interest charge.

In addition to receiving the principal plus interest on the redeemed properties and the sale proceeds on the third property, Richard Conry through AES received payment for the carpentry work of AES. Indeed, AES was one of only two subcontractors⁵ out of over 50 that was fully compensated for its services. AES received approximately $166,000.00 for work performed on the Countryside projects. Moreover, plaintiffs' carpentry experts testified that AES carpentry charges were substantially inflated. Finally, AES was one of the few, if not the only, subcontractor that was allowed to work on a cost plus basis, in this case cost plus 20%.

In May, 1983, Anderson, on behalf of Stroth, his newly formed corporation, purchased an undeveloped lot from LMH for $210,000.00, which the court will refer to as the St. Alban's property. Although there is a dispute over the value of the property at the time of sale, plaintiff presented evidence at trial establishing a fair market value at the time of sale of $71,000.00.⁶ Like the Countryside purchases, Anderson financed the purchase by obtaining a $350,000.00 loan from DiCon in return for a mortgage on the property. Also similar to the Countryside transaction, DiCon funded the land sale ($210,000.00), while B.T. Investors funded part of the cost of construction ($140,000.00). As previously mentioned, this type of construction financing is referred to in the industry as a wraparound mortgage.

Again similar to the Countryside transaction, DiCon transferred the $210,000.00 directly to LMH. Then LMH transferred the $210,000.00 back to DiCon to cover DiCon's original payment. As mentioned earlier, it is unclear from the evidence whether any money actually changed hands or whether the transactions were merely bookkeeping entries. It is also unclear whether the LMH transfer to DiCon was in the form a "loan" or "equity."

The St. Alban's loan agreement provided for interest to accrue at a rate of 31.8% per year for the first year of the loan. Between May, 1983, and when actual construction began in March, 1984, $45,000.00 in interest accumulated on the loan. The construction continued from March, 1984, until October, 1985. Anderson again solicited subcontractors...